LEESBURG, Va., Nov. 02, 2016 (GLOBE NEWSWIRE) — K2M Group Holdings, Inc. (Nasdaq:KTWO) (the “Company” or “K2M”), a global medical device company focused on designing, developing and commercializing innovative and proprietary complex spine and minimally invasive spine technologies and techniques, today reported financial results for the third quarter ended September 30, 2016.

Third Quarter 2016 Financial Summary:

• Total reported revenue of $59.3 million, up 7.8% year-over-year. Total revenue increased 8.7% year-over-year on a constant currency basis.
• Domestic revenue of $46.0 million, up 16.5% year-over-year
  • S. Complex Spine growth of 15.8% year-over-year
  • S. Minimally Invasive Surgery (MIS) growth of 6.7% year-over-year
  • S. Degenerative growth of 21.1% year-over-year
• International revenue of $13.3 million, down 14.3% year-over-year. International revenue decreased 11.8% year-over-year on a constant currency basis.
• Net loss of $7.9 million for the three months ended September 30, 2016, compared to a net loss of $10.2 million last year.
• Adjusted EBITDA of $2.8 million for the three months ended September 30, 2016, compared to Adjusted EBITDA of $1.1 million last year.

Third Quarter 2016 Highlights:

• On August 8, 2016, the Company announced the pricing of a private offering of $50 million aggregate principal amount of 4.125% convertible senior notes (the “Notes”) due 2036.
• On September 21, 2016, the Company announced at the Scoliosis Research Society (SRS) 51st Annual Meeting & Course in Prague, Czech Republic, that it has received 510(k) clearance from the U.S. Food and Drug Administration (FDA) for screw and connector components toward a growing spine application for its MESA^®Spinal System. This clearance enables these screw and connector components to be used as a part of a growing rod construct designed to accommodate growth in patients under 10 years of age.

Highlights Subsequent to Quarter-End:

• On October 6, 2016, the Company announced it has received 510(k) clearance from the FDA to expand its CASCADIA™ Lateral Interbody System featuring Lamellar 3D Titanium Technology™, the Company’s innovative technology that uses 3D printing with the goal of allowing for bony integration throughout an implant. The CASCADIA Lateral Interbody System line extension clearance strengthens K2M’s MIS portfolio and the Company’s leadership in the 3D printing of spinal devices, as evidenced by its having the most comprehensive 3D-printed spinal portfolio available on the market.
• On October 26, 2016, the Company announced the U.S. launch of its award-winning CASCADIA Interbody Systems, featuring Lamellar 3D Titanium Technology, during the 31st North American Spine Society (NASS) Annual Meeting. K2M presented clinical background on its 3D-printed technologies and showcased the Company’s comprehensive CASCADIA product portfolio, which was recognized by Orthopedics This Weekwith a 2016 Spine Technology Award as one of the best new spine technologies of 2016.

“Our third quarter sales growth of 16.5% in the U.S. was consistent with both our near-term expectations, and our long-term objective of revenue growth in the mid-to-high teens,” said President and Chief Executive Officer, Eric Major. “U.S. sales this quarter were driven primarily by a strong summer deformity season and the contributions from new customers adopting K2M’s innovative technologies across our procedure categories, but most notably in our degenerative and minimally invasive categories, which are benefitting from sales of our Lamellar 3D Titanium Technology platform. K2M offers the most comprehensive portfolio of FDA-cleared 3D-printed spinal devices on the market today and the surgeon community continues to show increasing awareness of our leadership position in this important area of the market.”

Mr. Major continued: “U.S. sales have increased 15% over the first nine months of 2016, driven by strong growth in each of our procedure categories—complex, minimally invasive and degenerative—which have increased sales 12%, 16% and 17%, respectively, so far this year. We are pleased to be reporting improving profitability as the year progresses. In addition, we look forward to continued progress throughout the balance of 2016 and have updated our full-year guidance expectations accordingly.”

Third Quarter 2016 Financial Results

Total revenue for third quarter 2016 increased $4.3 million, or 7.8%, to $59.3 million, compared to $55.0 million in the third quarter of 2015. Total revenue increased 8.7% year-over-year on a constant currency basis. The increase in revenue was primarily driven by greater sales volume from new surgeon users and newer product offerings, partially offset by a decrease in existing customer usage and decreases in both international direct and distributor revenue compared to last year.

Revenue in the United States increased $6.5 million, or 16.5% year-over-year, to $46.0 million, and international revenue decreased $2.2 million, or 14.3% year-over-year, to $13.3 million. Third quarter 2016 international revenue decreased 11.8% year-over-year on a constant currency basis. Foreign currency exchange impacted third quarter international revenue by approximately $0.4 million, representing approximately 247 basis points of international growth year-over-year.

The following table represents domestic revenue by procedure category.

By procedure category, U.S. revenue in the Company’s complex spine, MIS and degenerative categories represented 42.4%, 14.7% and 42.9% of U.S. revenue, respectively, for the three months ended September 30, 2016.

Gross profit for third quarter 2016 increased 5.8% to $39.8 million, compared to $37.6 million for third quarter 2015. Gross margin was 67.1% compared to 68.4% last year. Gross profit includes amortization expense on investments in surgical instruments of $3.5 million, or 5.8% of sales, for the three months ended September 30, 2016, compared to $3.1 million, or 5.7% of sales, last year. Third quarter of fiscal 2015 cost of goods sold included costs, net of recoveries, associated with medical device excise tax of $(0.1) million compared to no such expenses in the current period.

Operating expenses for third quarter 2016 decreased $1.7 million, or 3.6%, to $45.9 million, compared to $47.6 million for third quarter 2015. The decrease in operating expenses was driven primarily by a 15.0% decrease in general and administrative expenses offset partially by a 2.1% increase in sales and marketing expenses compared to last year.

Loss from operations for the third quarter of 2016 was $6.1 million, compared to a loss from operations of $10.0 million last year. Loss from operations included intangible amortization of $2.6 million and $2.5 million for the third quarters of 2016 and 2015, respectively.

Other expense for the third quarter of 2016 increased $1.8 million to $1.9 million, compared to $0.1 million last year. The increase in other expense, net was primarily attributable to interest expense incurred on the capital lease obligation related to our headquarters and operations facilities as well as the Notes issued in August 2016, and an increase of $0.5 million in unrealized losses from foreign currency re-measurement on intercompany payable balances.  Foreign currency losses impacted operating results compared to last year due to changes in the average exchange rates of the U.S. Dollar, Pound Sterling and Euro applied to intercompany balances in both periods.

Net loss for the third quarter of 2016 was $7.9 million, or $(0.19) per diluted share, compared to a loss of $10.2 million, or $(0.25) per diluted share, for the third quarter of 2015.

Nine-Months 2016 Financial Results

For the nine months ended September 30, 2016, total revenue increased $13.0 million, or 8.1%, to $174.8 million, compared to $161.8 million for the nine months ended September 30, 2015. Total revenue increased 8.6% year-over-year on a constant currency basis. U.S. revenue increased $17.3 million, or 15.0%, to $133.4 million for the first nine months of 2016, compared to $116.1 million last year. International revenue decreased $4.3 million, or 9.4%, to $41.4 million for the first nine months of 2016, compared to $45.7 million last year. International revenue decreased 7.9% year-over-year on a constant currency basis.

Sales in our complex spine, MIS and degenerative categories represented 40.5%, 15.5% and 44.0% of U.S. revenue, respectively, for the first nine months of 2016.

As of September 30, 2016, we had cash and cash equivalents of $46.1 million as compared to $34.6 million as of December 31, 2015. We had working capital of $120.9 million as of as September 30, 2016 compared to $107.4 million as of December 31, 2015. At September 30, 2016, outstanding long-term indebtedness included the carrying value of the Notes of $36.4 million and the capital lease obligation of $35.2 million. In addition, we had no borrowings outstanding under our credit facility.

2016 Outlook

The Company is updating its fiscal year 2016 guidance expectations, which was recently reaffirmed on August 3, 2016.

The Company now expects:

• Total revenue on an as reported basis in the range of $233.5 million to $235.0 million, representing growth of 8% to 9% year-over-year, compared to total revenue of $216.0 million in fiscal year 2015.
• Total net loss of approximately $43.0 million to $39.0 million, compared to a total net loss of $39.4 million in fiscal year 2015.
• Adjusted EBITDA in a range of ($2.0) million to $2.0 million, compared to Adjusted EBITDA of ($142) thousand in fiscal year 2015.

Conference Call

Management will host a conference call at 5:00 p.m. Eastern Time on November 2nd to discuss the results of the quarter, and to host a question and answer session. Those who would like to participate may dial 888-670-2254 (913-312-1510 for international callers) and provide access code 3362399 approximately 10 minutes prior to the start of the call. A live webcast of the call will also be provided on the investor relations section of the Company’s website at http://Investors.K2M.com/.

For those unable to participate, a replay of the call will be available for two weeks at 888-203-1112 (719-457-0820 for international callers); access code 3362399. The webcast will be archived on the investor relations section of the Company’s website.

About K2M Group Holdings, Inc.

K2M Group Holdings, Inc. is a global medical device company focused on designing, developing and commercializing innovative complex spine and minimally invasive spine technologies and techniques used by spine surgeons to treat some of the most difficult and challenging spinal pathologies. K2M has leveraged these core competencies to bring to market an increasing number of products for patients suffering from degenerative spinal conditions. These technologies and techniques, in combination with a robust product pipeline, enable the Company in the global spinal surgery market. Additional information is available online at www.K2M.com.

Forward-Looking Statements

This press release contains forward-looking statements that reflect current views with respect to, among other things, operations and financial performance.  Forward-looking statements include all statements that are not historical facts such as our statements about our expected financial results and guidance and our expectations for future business prospects, including with respect to our international distribution partners in Australia and Japan.  In some cases, you can identify these forward-looking statements by the use of words such as “outlook,” “guidance,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “could,” “seeks,” “predicts,” “intends,” “plans,” “estimates,” “anticipates” or the negative version of these words or other comparable words.  Such forward-looking statements are subject to various risks and uncertainties including, among other things: our ability to achieve or sustain profitability; our ability to successfully demonstrate the merits of our technologies; pricing pressure from our competitors, hospitals and changes in third-party coverage and reimbursement; competition and our ability to develop and commercialize new products; aggregation of hospital purchasing from collaboration and consolidation; hospitals and other healthcare providers may be unable to obtain adequate coverage and reimbursement for procedures performed using our products; the safety and efficacy of our products is not yet supported by long-term clinical data; our dependence on a limited number of third-party suppliers; our ability to maintain and expand our network of direct sales employees, independent sales agencies and international distributors and their level of sales or distribution activity with respect our products; the proliferation of physician-owned distributorships; concentration of sales from a limited number of spinal systems or products that incorporate these technologies; loss of the services of key members of our senior management, consultants or personnel; ability to enhance our product offerings through our research and development efforts; failure to properly manage our anticipated growth; acquisitions of or investments in new or complementary businesses, products or technologies; ability to train surgeons on the safe and appropriate use of our products; requirements to maintain high levels of inventory; impairment of our goodwill or intangible assets; disruptions in our information technology systems; any disruption or delays in operations at our facilities, including our new headquarter facility; or an ability to ship a sufficient number of our products to meet demand; ability to strengthen our brand; fluctuations in insurance cost and availability; extensive governmental regulation; in the United States and foreign jurisdictions; failure to obtain or maintain regulatory approvals and clearances; requirements for new 510(k) clearances, premarket approvals or new or amended CE Certificates of Conformity; medical device reporting regulations in the United States and foreign jurisdictions; voluntary corrective actions by us or our distribution or other business partners or agency enforcement actions; a recall of our products; withdrawal or restrictions on our products or the discovery of serious safety issues with our products; possible enforcement action if we engage in improper marketing or promotion of our products; the misuse or off-label use of our products; delays or failures in any future clinical trials;  the results of clinical trials; procurement and use of allograft bone tissue; environmental laws and regulations; compliance by us or our sales representatives with FDA regulations or fraud and abuse laws; U.S. legislative or regulatory healthcare reforms; medical device tax provisions in the healthcare reform laws; our need to generate significant sales to become profitable; potential fluctuations in sales volumes and our results of operations may fluctuate over the course of the year; uncertainty in our future capital needs; failure to comply with restrictions in our revolving credit facility; continuing worldwide economic instability; our inability to protect our intellectual property rights; our reliance on patent rights that we either license from others or have obtained through assignments; our patent litigation; the outcome of potential claims that we, our employees, our independent sales agencies or our distributors have wrongfully used or disclosed alleged trade secrets or are in breach of non-competition or non-solicitation agreements with our competitors; potential product liability lawsuits; operating risks relating to our international operations; foreign currency fluctuations; our ability to comply with the Foreign Corrupt Practices Act and similar laws associated with our activities outside the United States; possible conflicts of interest with our large shareholders; increased costs and additional regulations and requirements as a result of becoming a public company; our ability to implement and maintain effective internal control over financial reporting in the future; the potential impact of any future acquisitions, mergers, dispositions, joint ventures, investments or other strategic transactions we may make; and other risks and uncertainties, including those described under the section entitled “Risk Factors” in our most recent Annual Report on Form 10-K filed with the SEC, as such factors may be updated from time to time in our periodic filings with the SEC, which are accessible on the SEC’s website at www.sec.gov.  Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements.  These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this release and our filings with the SEC.

We operate in a very competitive and challenging environment.  New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this release.  We cannot assure you that the results, events and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.

The forward-looking statements made in this press release relate only to events as of the date on which the statements are made.  We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law.  We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements.

K2M GROUP HOLDINGS, INC.
Reconciliation of GAAP to Non-GAAP Measures
(Unaudited)
(In Thousands)

Use of Non-GAAP Financial Measures

This press release includes the non-GAAP financial measures of revenue in constant currency, Adjusted Gross Profit, and Adjusted EBITDA.

The Company presents these non-GAAP measures because it believes these measures are useful indicators of the Company’s operating performance.  Management uses these non-GAAP measures principally as a measure of the Company’s operating performance and believes that these measures are useful to investors because they are frequently used by analysts, investors and other interested parties to evaluate companies in the Company’s industry.  The Company also believes that these measures are useful to our management and investors as a measure of comparative operating performance from period to period.

Constant currency information compares results between periods as if exchange rates had remained constant period-to-period.  We calculate constant currency by converting the prior-year results using current-year foreign currency exchange rates.

Adjusted Gross Profit represents Gross Profit less amortization expense of surgical instruments and medical device excise tax expense.  The Company presented Adjusted Gross Profit because it believes it is a useful measure of the Company’s gross profit and operating performance because the measure is not burdened by the timing impact of instrument purchases and related amortization as well as the medical device tax.  The Company believes that Adjusted Gross Profit is useful to investors because it is frequently used by analysts, investors and other interested parties to evaluate companies in its industry.

Adjusted EBITDA represents net loss plus interest expense, income tax (benefit) expense, depreciation and amortization, stock-based compensation expense and foreign currency transaction loss.  Adjusted EBITDA will also include a deduction for cash payments made for rent on the Company’s new headquarters and operations facilities under the capital lease agreement once rent payment commence in October 2016.

Adjusted EBITDA is presented because the Company believes it is a useful indicator of its operating performance.  Management uses the measure principally as a measure of the Company’s operating performance and for planning purposes, including the preparation of the Company’s annual operating budget and financial projections.  The Company believes Adjusted EBITDA is useful to investors because it is frequently used by analysts, investors and other interested parties to evaluate companies in its industry.  The Company believes Adjusted EBITDA is useful to its management and investors as a measure of comparative operating performance from period to period.

Adjusted EBITDA is a non-GAAP financial measure and should not be considered as an alternative to net loss as a measure of financial performance or cash flows from operations as a measure of liquidity, or any other performance measure derived in accordance with GAAP and it should not be construed as an inference that the Company’s future results will be unaffected by unusual or non-recurring items. In addition, the measure is not intended to be a measure of free cash flow for management’s discretionary use, as it does not reflect certain cash requirements such as tax payments, debt service requirements, capital expenditures and certain other cash costs that may recur in the future.  Adjusted EBITDA contains certain other limitations, including the failure to reflect our cash expenditures, cash requirements for working capital needs and cash costs to replace assets being depreciated and amortized. In evaluating Adjusted EBITDA, you should be aware that in the future the Company may incur expenses that are the same as or similar to some of the adjustments in this presentation.  The Company’s presentation of Adjusted EBITDA should not be construed to imply that its future results will be unaffected by any such adjustments. Management compensates for these limitations by primarily relying on the Company’s GAAP results in addition to using Adjusted EBITDA on a supplemental basis.  The Company’s definition of this measure is not necessarily comparable to other similarly titled captions of other companies due to different methods of calculation.

The following table presents reconciliations of gross profit to adjusted gross profit and net loss to Adjusted EBITDA for the periods presented.

The following table presents a reconciliation of net loss to Adjusted EBITDA for our 2016 guidance:

The reconciliation assumes the midpoint of the Adjusted EBITDA range and the midpoint of each component of the reconciliation, corresponding to guidance of ($2.0) million to $2.0 million for 2016.

⁽¹⁾  Represents expected cash payments for rent on the Company’s new headquarters and operations facilities under the capital lease agreement, which begin in October 2016.

Investor Contact:

Westwicke Partners on behalf of K2M Group Holdings, Inc.

Mike Piccinino, CFA

443-213-0500

K2M@westwicke.com

CONTACT US

INVESTOR INFORMATION

NOVEMBER 2, 20164:00 P.M. ET

November 02, 2016

SAN FRANCISCO, CA – (November 2, 2016) – PeerWell, whose PreHab mobile platform helps patients prepare both physically and mentally for surgery to recover faster, announced today that it has raised $2.1 million in seed funding led by XSeed Capital.

Founded in 2015 by Manish Shah, Navin Gupta and Evan Minamoto, PeerWell has been focused on its flagship PreHab program for hip and knee replacement patients. PeerWell PreHab helps hip and knee replacement candidates optimize their health before surgery. Leveraging evidence-based health science, the PeerWell app delivers patients customized daily lessons that are proven to improve the results of surgery and speed-up recovery. Pairing each patient with real people undergoing a joint replacement at the same time, support and mentorship are at the heart of PeerWell.

“Today the average surgery costs the same as living with diabetes for 33 years,” Manish Shah, CEO of PeerWell. “The best way to reduce costs is to enable patients to be as strong, healthy and prepared as possible before their procedure. Unfortunately, today most patients are given a 50 page hard copy book of pre-op instructions which is an outdated and ineffective method for preparing patients. At PeerWell, we are establishing pre-surgical PreHab as the standard of care for all patients, providing an easy to use mobile app tool for surgery preparation. We designed PeerWell to make clinical workflow more efficient by automating everything a patient needs to get done before surgery. This is rare a win for hospitals, physicians and patients.”

PeerWell’s system houses hundreds of evidence based patient modules that are personalized for patients by machine learning based program creation algorithms. Additionally, PeerWell allows patients to engage with others who are facing the same procedure and learn from patient mentors using its secure peer-to-peer communication technology.

The company will use the seed funding to enhance the platform by launching smartphone based tracking for key orthopedic outcomes including range-of-motion, sit/stand testing and six-minute walk tests. This round of funding will also allow PeerWell to continue its growth by accelerating the development of PreHab programs for other major procedures, establishing new distribution channels for its existing orthopedics business and investing in team growth at its San Francisco headquarters.

“Healthcare is moving toward outcome accountability and associated payment mechanisms, nowhere faster than in the move to bundled payments for procedures like hip and knee replacement.  There is consequently a large and growing opportunity for entrepreneurs who recognize the change and can deliver what is needed: improve patients’ ability to go straight home after surgery, reduce length of stay, drop readmissions, and limit overall complications,” said Michael Borrus, Founding Partner of XSeed Capital. “PeerWell is at the forefront of this emerging field. Their PreHab platform is unique in that it aligns and dramatically benefits all stakeholders: patients, doctors, and hospitals. That is why we are excited to invest in Manish and the PeerWell team.”

About PeerWell

PeerWell is a healthcare technology company that helps patients prepare for and recover from major episodes of care with its PreHab mobile platform. Every year 50 million people undergo major procedures like joint replacement surgery, coronary bypass surgery and chemotherapy. Using PeerWell, patients complete personalized 4-5 item daily checklists that help them prepare mentally, physically and environmentally. Learn more about PeerWell’s fully automated perioperative patient solution at https://www.peerwell.co/.

SAN JOSE, Calif., Nov. 2, 2016 /PRNewswire/ — SI-BONE, Inc., a medical device company that pioneered the use of the iFuse Implant System^® (“iFuse”), a minimally invasive surgical (MIS) device indicated for fusion for certain disorders of the sacroiliac (SI) joint, reported that the Centers for Medicare & Medicaid Services (CMS) has issued its 2017 Final Hospital Outpatient Prospective Payment System (HOPPS) and Ambulatory Surgical Center (ASC) payment rule for MIS SI joint fusion.  The final payment rule shows AMA CPT^® code 27279 has been assigned to APC 5116 and provides an increased Medicare national average hospital outpatient payment from $10,538to $14,698, representing an increase of $4,160 or 40% over the current payment amount.  In the ASC, the new Medicare national average payment will increase from $7,887 to $12,553, representing an increase of $4,666 or 59% over the current payment amount.  The new payments will become effective January 1, 2017.

“With these significant increases in facility payments, CMS continues to recognize the value of MIS SI joint fusion when billed using AMA CPT^® code 27279 and the importance of providing access to our procedure for all Medicare beneficiaries in the outpatient setting,” said Michael Mydra, Vice President of Health Outcomes & Reimbursement at SI-BONE.  “We believe that iFuse fits strategically with the overall goals of the Affordable Care Act (ACA) by providing a safe and effective treatment of degenerative sacroiliitis and SI joint disruption, which has been demonstrated to improve pain, patient function and quality of life in a cost-effective manner.”

About SI-BONE, Inc.

SI-BONE, Inc. (San Jose, California) is a leading medical device company dedicated to the development, manufacture and commercialization of minimally invasive surgical devices for the treatment of patients with low back symptoms related to certain sacroiliac (SI) joint disorders.  SI-BONE, Inc. first received 510(k) clearance to market its iFuse Implant System (“iFuse”) from the Food and Drug Administration (FDA) in November 2008. The CE mark for European commercialization was obtained in November 2010.

The iFuse Implant System provides a minimally invasive surgical solution to fuse the SI joint using patented triangular titanium implants inserted across the joint from the ilium to the sacrum.  The triangular implant shape combined with an interference press fit is designed to provide immediate fixation by minimizing rotation and joint motion.  The implants’ porous surface provides an ideal environment for bone ongrowth and ingrowth, facilitating long-term fusion of the joint.  iFuse is the only commercially available SI joint fusion system in the United States with published evidence that demonstrates safety, effectiveness and economic benefits, including clinical results from three large multicenter prospective studies, two of which are randomized controlled trials. Currently, there are more than 45 peer-reviewed publications (www.si-bone.com/results).  It is the only SI joint fusion system with an FDA clearance recognizing demonstrated improvements in pain, patient function and quality of life following treatment.

The iFuse Implant System is intended for sacroiliac fusion for conditions including sacroiliac joint dysfunction that is a direct result of sacroiliac joint disruption and degenerative sacroiliitis.  This includes conditions whose symptoms began during pregnancy or in the peripartum period and have persisted postpartum for more than 6 months.  Clinical studies have demonstrated that treatment with the iFuse Implant System improved pain, patient function, and quality of life.  There are potential risks associated with the iFuse Implant System.  It may not be appropriate for all patients and all patients may not benefit.  For information about the risks, visit: www.si-bone.com/risks

SI-BONE and iFuse Implant System are registered trademarks of SI-BONE, Inc. ©2016 SI-BONE, Inc. All Rights Reserved. 9754.110216

SOURCE SI-BONE, Inc.

Related Links

http://www.si-bone.com